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Colgate-Palmolive Company (CL) vs. Sibanye Gold Limited (SBGL): Comparing the Personal Products Industry’s Most Active Stocks

Colgate-Palmolive Company (NYSE:CL) shares are down more than -17.44% this year and recently increased 0.32% or $0.2 to settle at $62.29. Sibanye Gold Limited (NYSE:SBGL), on the other hand, is down -40.90% year to date as of 05/17/2018. It currently trades at $2.87 and has returned -2.05% during the past week.

Colgate-Palmolive Company (NYSE:CL) and Sibanye Gold Limited (NYSE:SBGL) are the two most active stocks in the Personal Products industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CL to grow earnings at a 8.41% annual rate over the next 5 years. Comparatively, SBGL is expected to grow at a 1.30% annual rate. All else equal, CL’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Colgate-Palmolive Company (CL) has an EBITDA margin of 25.77%. This suggests that CL underlying business is more profitable CL’s ROI is 39.10% while SBGL has a ROI of 0.70%. The interpretation is that CL’s business generates a higher return on investment than SBGL’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. CL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, SBGL’s free cash flow per share was -. On a percent-of-sales basis, CL’s free cash flow was 0.96% while SBGL converted 0% of its revenues into cash flow. This means that, for a given level of sales, CL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. CL has a current ratio of 1.10 compared to 1.40 for SBGL. This means that SBGL can more easily cover its most immediate liabilities over the next twelve months.

Valuation

CL trades at a forward P/E of 18.29, and a P/S of 3.47, compared to a forward P/E of 10.25, a P/B of 0.86, and a P/S of 0.44 for SBGL. CL is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CL is currently priced at a -13.85% to its one-year price target of 72.30. Comparatively, SBGL is -43.06% relative to its price target of 5.04. This suggests that SBGL is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CL has a beta of 0.73 and SBGL’s beta is 0.06. SBGL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CL has a short ratio of 3.40 compared to a short interest of 4.56 for SBGL. This implies that the market is currently less bearish on the outlook for CL.

Summary

Colgate-Palmolive Company (NYSE:CL) beats Sibanye Gold Limited (NYSE:SBGL) on a total of 9 of the 14 factors compared between the two stocks. CL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, CL has better sentiment signals based on short interest.

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